The importance of having a trust protector should not go overlooked. Generally, the protector is in charge of overseeing trustee actions for the sole purpose of preserving trust assets. Specifically, the protector can be whatever you want her to be as per your trust documents. Thus, while a properly structured trust protects assets against outside creditor attack, the protector, evidently, protects trust assets against internal threats by the trustee. In essence, the protector acts as another layer of protection for your wealth.
To better understand its function, consider the following illustration:
Here, the trustee is in charge of administering and managing the trust. Assets are titled over to the trust and the trustee, as fiduciary, can carry out various activities in her capacity (of course subject to the trust documents, hence properly structured trust) that can heavily affect the disposition and value of trust assets. As a natural consequence, many clients find titling much of their net worth over to a third party trustee as quite discomforting. And note, for this type of offshore irrevocable trust to work, complete control off your assets must be handed over to the trustee.
Thus, if you find yourself embroiled in litigation and you lose, it is likely that the judge will order the trustee to turn over trust assets to the creditor. This is certainly a common outcome in trusts where the settlor is also a beneficiary, as illustrated above, or in situations where the settlor did not give the trustee complete control.
Trustees of offshore trusts will get the same treatment. However, they are not likely to comply as they are under no obligation to follow the U.S. judge’s order; after all, U.S. judgments are not easily enforced in these asset protection jurisdictions. This has happened, though, especially with domestic and offshore trusts with U.S. trustees. Regarding this last point, note that while offshore trustees of domestic trusts are not subject to the jurisdiction of the United States, domestic trustees of offshore trusts are wholly subject to such U.S. jurisdiction and thus highly likely to comply with an order detrimental to the trust and its assets.
Thus, what do you do? Consider the following questions, briefly echoed above:
Do you feel comfortable ceding control of your assets to a trustee that you likely have never met?
Is your trustee located in the United States?
If so, do you think she will stand up to the rigors of domestic litigation and defy a U.S. judge’s order directing her to turn over trust assets?
Enter the world of the trust protector.
As mentioned above, the trust protector will keep, by order of the trust documents, a watchful eye on the trustee. Should the trustee decide — voluntarily or involuntarily — to take any action inconsistent with the purpose of the trust or wishes of the settlor, or choose to make a bad investment or sell trust assets, or even find herself subject to a U.S. judge’s order, the trust protector will spring into action and take the appropriate steps to safeguard your wealth, up to and including replacing the trustee.
Therefore, it is highly recommended that you consider the services of a trust protector.
Ronald Iacone is the managing and founding partner of Iacone Law. He focuses his practice on asset protection representation, business and international law, and appeals to the interrelatedness of the three to best discuss your issue and solution.